The spread is the difference between the price you can sell at and the price you can buy at. Calculating it is one subtraction. Turning that number into money — what the trade actually cost you — takes one more step, and that is the step most explanations skip.
The subtraction
Every forex quote has two prices. The bid is what you can sell at. The ask (sometimes offer) is what you can buy at. The ask is always the higher of the two.
Spread = Ask − Bid
Take EUR/USD quoted at 1.08432 / 1.08445.
- Ask 1.08445 − Bid 1.08432 = 0.00013
That is the spread in price terms. Nobody quotes it that way in conversation, so the next step is converting it to pips.
Pips, and the fifth decimal place
A pip is the standard unit of price movement in forex. For almost every pair it is the fourth decimal place: 0.0001.
The exception is pairs quoted against the Japanese yen, where a pip is the second decimal place: 0.01. USD/JPY at 149.32 has its pip in the "2".
Most brokers now quote an extra digit beyond the pip — five decimals on most pairs, three on JPY pairs. That last digit is a tenth of a pip. It is variously called a pipette, a fractional pip, or simply a point, which is the term MetaTrader uses. It exists because it lets brokers compete on price at a finer resolution than a whole pip.
So for our EUR/USD example:
- 0.00013 ÷ 0.0001 = 1.3 pips
The same arithmetic on a JPY pair. USD/JPY quoted 149.320 / 149.336:
- 149.336 − 149.320 = 0.016
- 0.016 ÷ 0.01 = 1.6 pips
The only thing that changes is which decimal place you divide by.
| Pair type | Pip size | Quote decimals | Example spread |
|---|---|---|---|
| Most pairs (EUR/USD, GBP/USD) | 0.0001 | 5 | 1.08432 / 1.08445 = 1.3 pips |
| JPY pairs (USD/JPY, EUR/JPY) | 0.01 | 3 | 149.320 / 149.336 = 1.6 pips |
| Gold (XAU/USD), typical convention | 0.01 | 2 | 2412.30 / 2412.65 = 35 points |
Metals and indices follow their own conventions rather than the forex pip rule, and those conventions differ between brokers. Check the symbol specification rather than assuming.
From pips to money: the step that matters
A spread of 1.3 pips tells you nothing about cost until you know your position size. What you pay is:
Cost = spread in pips × pip value per lot × number of lots
Pip value is the money one pip is worth on one lot. It depends on the lot size and on which currency sits second in the pair.
For any pair quoted in US dollars — EUR/USD, GBP/USD, AUD/USD — the pip value in USD is fixed and easy, because a pip is 0.0001 of a dollar per unit:
- Standard lot, 100,000 units: 100,000 × 0.0001 = $10.00 per pip
- Mini lot, 10,000 units: $1.00 per pip
- Micro lot, 1,000 units: $0.10 per pip
So our 1.3-pip EUR/USD spread costs:
| Position | Pip value | Spread cost |
|---|---|---|
| 1.00 lot (100,000) | $10.00 | 1.3 × $10.00 = $13.00 |
| 0.10 lot (10,000) | $1.00 | 1.3 × $1.00 = $1.30 |
| 0.01 lot (1,000) | $0.10 | 1.3 × $0.10 = $0.13 |
That is the whole calculation. Spread in pips, times pip value, times lots.
When the quote currency is not your account currency
The clean $10-per-pip figure holds when the pair's second currency is the US dollar and your account is in dollars. Otherwise there is a conversion.
For USD/JPY, one pip on a standard lot is 100,000 × 0.01 = ¥1,000. To express that in dollars you divide by the USD/JPY rate:
- At an assumed rate of 149.32: ¥1,000 ÷ 149.32 = $6.70 per pip
The 149.32 above is an assumed rate for the arithmetic only. Pip value on JPY pairs moves with the exchange rate, so it is not a fixed number the way the USD-quoted pairs are.
A 1.6-pip spread on one standard lot of USD/JPY therefore costs roughly 1.6 × $6.70 = $10.72 at that rate.
Your platform does this for you. In MetaTrader, the symbol specification shows contract size and tick value, and the Trade tab shows profit in your account currency directly. The arithmetic is worth understanding anyway, because it tells you which of two quoted spreads is actually cheaper when the pairs are quoted in different currencies.
The spread is a round-turn cost you pay immediately
A point that gets lost: you pay the spread once, at entry, and you pay it up front.
Open a position and it shows an immediate unrealised loss equal to the spread. That is not an error and not slippage. You bought at the ask and the platform is now valuing your position at the bid, because the bid is what you could sell it for. The market has to move by the spread before you are at breakeven.
This is why the spread matters far more to short-horizon trading than to long. A 1.3-pip cost is a rounding error on a position held for three weeks and a serious tax on one held for three minutes.
What the spread is not
It is not your whole trading cost. Three other charges sit alongside it:
- Commission. Raw-spread and ECN-style accounts quote much tighter spreads and charge a separate per-lot commission. The comparison that matters is spread plus commission together, not either alone — see spread vs commission.
- Swap. Hold a position past the daily rollover and you pay or receive interest on the currencies involved. That is covered in swap and rollover fees.
- Slippage. The difference between the price you expected and the price you got, which is a property of execution rather than of pricing — see what slippage costs.
It is not fixed. Most retail accounts are on variable spreads that widen and tighten with liquidity. They are typically at their narrowest when London and New York overlap and at their widest in the thin hours after the New York close and around scheduled data releases. Trading sessions and liquidity covers the pattern, and news and volatility covers what happens around releases.
It is not the same as the underlying market's spread. The quote you see includes whatever your broker adds to the price it receives. Whether there is a markup, and how large it is, depends on the pricing model — ECN vs market maker explains the difference.
Why the advertised spread and the one you get can differ
Brokers advertise spreads in one of two ways, and the difference is not cosmetic.
An average spread is the mean across some measurement window — often a full trading day, sometimes a month. Because it includes the quiet hours when spreads are widest and the liquid overlap when they are narrowest, an average can be a fair summary of the whole day and still be unlike the number on your screen at any given moment.
A minimum or "from" spread is the narrowest the broker has observed. It is a real figure and an almost useless one for planning, because it describes the best conditions rather than the typical ones. A pair advertised "from 0.0 pips" is telling you what happened at the single most liquid instant of the sample, not what you will pay on a Tuesday afternoon.
The number that answers your question is the one on your own platform, at the hour you actually trade, on the pairs you actually trade. Open the terminal at that time and read the bid and ask. Do the subtraction from the section above. That measurement takes ten seconds and is worth more than any published figure, because it is measured under your conditions rather than someone else's.
It is also worth measuring more than once. A spread read at a single moment tells you about that moment. Reading it at the open, mid-session and shortly before the close tells you the shape of what you are paying across a day, and that shape differs far more between pairs than the headline numbers suggest.
Comparing two accounts properly
The only comparison worth making is total cost to open and close one position of the size you actually trade.
For a 1.0-lot EUR/USD round turn, an account quoting 1.3 pips with no commission costs $13.00. An account quoting 0.2 pips plus $3.50 commission per lot per side costs $2.00 in spread plus $7.00 in commission — $9.00. The second is cheaper for that trade, and the headline spread of the first tells you nothing about it.
Run that arithmetic at your own typical lot size before switching anything. The ranking can reverse at small position sizes, because commission is charged per lot while the spread scales with it.
Pip sizes, lot conventions and the arithmetic above are definitional and do not vary between brokers. Actual spreads, commissions and symbol specifications do vary, and the exchange rate used in the USD/JPY worked example is an assumed figure for illustration only. Verify current pricing with your own broker. This article is for informational purposes only and is not financial advice. CFDs and leveraged forex are complex instruments and most retail accounts lose money.
